Why you should care

Because it’s Silicon Valley meets Portland — with lots of tequila.

By Meghan Walsh

The Daily DoseJUL 28 2015

As the sun sets behind the enveloping mountains, fading from orange to purple, Guadalajara’s elite mingle on the top floor of one of the city’s poshest office buildings. Against the throb of electronic music, they listen to a half-dozen bright-eyed entrepreneurs pitch — and hard. Education apps. Software. A peer-to-peer lending platform.

They have the ideas. But can they get the investors? The city of Guadalajara, Mexico, faces that question, writ large, as it tries to transition from a manufacturing hub for American tech giants to something homegrown, inventive and entrepreneurial. The government has bet big that they can. It’s dedicated $20 million to develop a “Ciudad Creativa Digital” in Guadalajara and created a special state ministry of innovation dedicated to coaxing investors. The push has had some success so far — Intel has poured $177 million into a new design center — but what it really needs are some angels. “We have all the pieces. It’s bringing them together,” says Aldo Farah, regional director of Angel Ventures Mexico, the fund that’s hosting tonight’s inaugural wine-fueled gathering.

To be sure, the amounts are not swoon-worthy in a global context. Angel Ventures is one of Mexico’s more prominent funds, but it’s dozens of times smaller than those of Silicon Valley giants. Some of the challenges Mexican entrepreneurs face are cultural: Startup culture is pretty new, and local investors tend to be risk averse, preferring to put their money into things like real estate. Moreover, Mexico has not historically been a good place for a brave entrepreneur. The World Bank ranks it 67th when it comes to ease of starting a business, right behind Uzbekistan and Serbia. “The environment for lending is generally pretty bad,” says Erik Lee, executive director of the think tank North American Research Partnership. Then there is the battle to keep growing companies from fleeing in the face of government corruption and crime. Typically, the cartels target mom-and-pop, brick-and-mortar companies, though, and stay away from industrial parks where the multinationals tend to congregate.

Oseas Ramirez Assad (left) of we-know.net chats up a potential investor during a networking event hosted by Angel Ventures in Guadalajara.

Source Alex Washburn / OZY

Farah is trying to convince potential financiers that, yes, “it’s more risk, but also more rewarding.” (He tells OZY that the event was successful, with 90 percent of the investors telling him that they wanted to set up meetings with at least one of the startups.) The innovation ministry in Jalisco state says startup financing totaled $100 million over the past two years and is set to grow to $200 million a year by 2017. While the projection may be overly optimistic, it’s not utterly pie in the sky, given the fundamentals: Some 700 tech companies are already concentrated in Guadalajara, and 70,000 of the entire country’s 115,000 annual science and engineering graduates hail from the region. In recent months, the venture capital scene has gone from nonexistent to a handful of investors. Meanwhile, groups like iTuesday and Hackers & Founders have sprouted up to connect the idea generators with the deep pockets.

Mexico City, 360 miles to the southeast, remains the country’s economic heartbeat, but Guadalajara has certain historical advantages. Decades ago, bigwigs such as Oracle, Motorola, Hewlett-Packard and IBM set up shop here, building a demand for engineers and coders. That led to programs at the universities and eventually a new workforce of tech-savvy millennials. Now these young and eager minds are striking out on their own, starting companies like the social media advertising platform VoxFeed, which just raised $1.8 million; Sunu, a wearable-technology firm that has created an award-winning sensor bracelet to lead the blind; and the soon-to-be international solar superstar Inventive Power.

For his college thesis project, 29-year-old Inventive Power CEO Angel Mejía Santiago and his co-founder designed a solar panel that generates thermal energy. When their professors encouraged them to take it to market, they applied for — and were awarded — a $100,000 grant from Jalisco’s innovation ministry. That was in 2010; by 2012, they were Guadalajara’s first solar company. The scene inside their office, tucked in a colorful industrial neighborhood on the outskirts of town, would be familiar to anyone who’s spent time in Silicon Valley: open-concept seating, rows of 20-something men — and, of course, the token woman — pounding away on laptops. One big difference is that the occupants dress better. They still wear jeans, but instead of sneakers and hoodies, they’ve upgraded to button-ups and dress shoes.

A worker at Inventive Power, in Guadalajara.

Source Alex Washburn / OZY

Another difference: With no other outside investment beside their government grant, the nascent business owners have had to rely on revenue from the start. While that’s common among many of the startups here, it may prove to set Guadalajara apart (in a good way) from its Northern California counterpart, where there seems to be an endless funding stream. Inventive Power focused on tech that would pay for itself — it will in three years, says the soft-spoken, round-faced Santiago. But looking back, he would have tried to get more funding sooner. “Trial and failure costs you a lot of money,” he says.

Whatever Guadalajara’s future, few want it to be the “Silicon Valley” of its region — a mantle that city after city has vied for as a means of attracting investment and boosting the economy. “To try to mimic Silicon Valley,” says Jesús Ricardo Alvarez Félix, a Ph.D. student at MIT and Ciudad Creativa Digital’s innovation coordinator, “is a dubious recipe.” Entrepreneurs and investors are aiming at something more original. The key now, Félix says, is making the transition from a land where technology is produced to one where it’s imagined.